Options Report: Trading Volume, Dendreon, Baidu
Business has continued to boom at the Chicago Board Options Exchange. The exchange said after the market closed Monday that average daily volume during the month of June was up 24% to 3.5 million contracts, compared with 2.9 million contracts during June 2006. Average daily volume jumped 20% during the second quarter.
"Institutional investors realize options are an efficient and effective means of managing risk and enhancing returns," said Bud Haslett, director of option analytics at Miller Tabak. "There’s a little bit more of a need to manage downside risk after the gains in the market, since most of the positions are long stock."
Haslett said that option premiums have increased as more hedging has taken place amid market uncertainty, as reflected in Volatility Index gains.
"If you have big intraday swings, volatility will tick up," Haslett said. "The VIX was at single digits last summer and closed above 16 last week, indicating there's more uncertainty in the marketplace. Options sellers are less likely to sell at lower volatility."
Dendreon call options were among the most actively traded options ahead of the Independence Day break. CNBC pharmaceuticals reporter Mike Huckman reported that scientists at the National Cancer Institute found evidence that therapeutic cancer vaccines, including Dendreon's Provenge, were "prolonging patient survival."
Their findings are being published in the new issue of the Journal of the American Association of Cancer Research.
Dendreon's Provenge received a positive recommendation for approval by an outside panel of experts, but the FDA delayed making a decision until more data comes in.
The NCI researchers said the prostate cancer vaccines were "in fact priming the immune system" and that the scientific community and regulatory committees "ought to rethink...our current approach to measuring the effectiveness of a cancer vaccine."
Volume in the Dendreon July 7.5 and July 10 calls surged past 20,000 contracts by late morning on bets the stock will further rally before expiration of those options in a little more than two weeks. The shares closed at $7.70 on Tuesday.
Volume in options of Chinese language Internet search company Baidu.com continued to be biased toward call options as momentum players bet the stock will rise further. Baidu shares, which closed at $181 Tuesday, have rallied from $154 less than two weeks ago. In the July options, call volume swamped put volume by a margin of more than 2 to 1, with the heaviest activity in the July 200 calls. That's a bet that Baidu shares will rise another $20 before expiration on July 20.
The rise in Baidu and a host of other Chinese internet stocks was sparked Monday after Chinese gaming company Shanda said it struck a deal with Tokyo-based Tecmo, through which it will run the first online version of Tecmo's 3-D video fighting game "Dead or Alive." The online version, to be called "DOA Online," is expected to boost traffic at Chinese internet sites.